Germany and France told Greece on Wednesday to make up its mind fast whether it wants to stay in the eurozone after a shock decision to call a referendum on a 130 billion euro ($178 billion) bailout sparked panic on global markets. French President Nicolas Sarkozy and Germany's Angela Merkel summoned George Papandreou for emergency talks in Cannes on the eve of a G20 summit of major world economies, to push for rapid implementation of measures to tackle the currency area's debt crisis, which Athens has thrown into doubt.
The Franco-German duo first met the heads of European Union institutions and the International Monetary Fund on Wednesday to discuss how to limit the damage from the Greek move and apply pressure for a swift outcome. EU and IMF board sources said Greece would not receive an urgently needed 8 billion euro aid instalment, due this month, until after the vote because official creditors wanted to be sure Athens would stick to its austerity programme.
Sarkozy has said Papandreou's announcement of a referendum "took the whole of Europe by surprise" and his prime minister, Francois Fillon, told parliament: "Europe cannot be kept waiting for weeks for the outcome of the referendum. "The Greeks must say quickly and without ambiguity whether they choose to keep their place in the eurozone or not."
Opinion polls suggest most Greeks think the deal thrashed out by euro zone leaders last week is a bad one, but much will depend on how Papandreou frames the debate, either on the bailout - and the painful cuts it demands - or membership of the euro, which remains popular.
Greece's European partners will press for the latter. German Chancellor Merkel struck the same tone of exasperation and impatience as Fillon in comments before flying to Cannes for hastily arranged meetings of European Union policymakers (1630 GMT) and with Papandreou (1930 GMT). "We agreed a plan for Greece last week. We want to put this plan into practice, but for this we need clarity and the meeting tonight should help with precisely this," she said.
French officials said Papandreou would be pressed to put the bailout deal to parliament before the referendum, in hopes of reassuring financial markets, and to hold the plebiscite by mid-December to avoid months of uncertainty. A German Finance Ministry spokesman said Greece apparently had enough money to keep running until mid-December, when it has to redeem more than 6 billion euros in debt.
Win or lose, Papandreou's gamble guarantees weeks of uncertainty just as the 17-nation European currency area is desperate for a period of calm to implement the remedies agreed to corral its sovereign debt crisis. Some in Papandreou's party called for him to quit, accusing him of endangering euro membership with his shock decision to call a popular vote, a move that pummelled the euro and stocks.
The Socialist prime minister battled late into the night to win cabinet support, giving him at least a stay of execution before a confidence vote in parliament on Friday. "The referendum will be a clear mandate and a clear message inside and outside Greece on our European course and participation in the euro," Papandreou told a seven-hour cabinet meeting that ended early on Wednesday.
European Commission chief Jose Manuel Barroso urged Greeks to unite in support of the bailout plan, warning that the alternative would be too ghastly to predict. "Without the agreement of Greece to the EU/IMF programme, the conditions for Greek citizens would become much more painful, in particular for the most vulnerable. The consequences would be impossible to foresee," he said.
If Papandreou wins the confidence vote, the eurozone faces a period of policy vacuum in which markets can create havoc. If he loses, Greece faces a disorderly default which would hammer Europe's banks and threaten the much larger economies of Italy and Spain, which the bloc may not have the means to bail out. As a result, the Greek premier's move has aroused anger and surprise in equal measure around the world. "That's enough now: Greeks out!" Kronen Zeitung, Austria's biggest-selling paper, said on its front page.
The chairman of euro zone finance ministers, Jean-Claude Juncker, said Greece could go bankrupt if voters rejected the bailout package and Japanese Finance Minister Jun Azumi said: "Everyone is bewildered." Doubt about Europe's ability to contain the debt crisis has once more sent markets into a spin and put Italy firmly in the firing line. The risk premium on Italian bonds over safe-haven German Bunds hit a euro-lifetime high on Tuesday, despite European Central Bank buying of its bonds.
Ireland's finance minister said the ECB would be forced to pledge "a wall of money" to buy bonds, something many of its policymakers are deeply uncomfortable about. Until the Greek situation is clearer, last week's package of measures is likely to be in limbo, leaving the ECB as the only bulwark against market attacks. The head of Germany's banking association, Michael Kemmer, said agreement on a 50 percent writedown of Greek debt by its private creditors would have to wait. "I can't imagine a debt exchange taking place before the referendum," he said.